Manufacturing in U.S. unexpectedly contracted as orders slowed

Manufacturing in the U.S. unexpectedly contracted in November, reflecting weaker business demand, slower exports and disruptions from superstorm Sandy.

The Institute for Supply Management’s factory index decreased to 49.5 last month, the lowest since July 2009, from 51.7 in October, the Tempe, Arizona-based group said today. Economists projected the index would ease to 51.4, according to the median forecast in a Bloomberg survey. A reading of 50 marks the dividing line between expansion and contraction.

Less corporate investment in equipment as U.S. lawmakers debate the nation’s budget, weaker orders from overseas and disturbances related to the biggest Atlantic storm in history are converging to slow manufacturing. The data highlight an industry that’s contributing less to the economy than it had early in the expansion that began in 2009.

“Manufacturing has slowed down,” Joshua Dennerlein, an economist at Bank of America Corp. in New York, said before the report. “Manufacturers have to prepare for demand down the road, and they’re not actually sure what it’s going to be.”

Estimates for the ISM index from the 83 economists surveyed ranged from 49 to 53.5. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.

Other reports today showed euro-area manufacturing kept contracting in November while factory output rose in China and Russia, underscoring the divergence of the global economic recovery.

Manufacturing output in the 17-nation euro area shrank for a 16th month, with a gauge of manufacturing rising to 46.2 from 45.4 in October. In China the Purchasing Managers’ Index climbed 50.6 and in Russia it expanded for a 14th month.

Orders Drop

The ISM’s index of U.S. new orders dropped to a three-month low of 50.3 in November from 54.2. The production increased to 53.7 last month from 52.4 in October. The gauge of export orders dropped to 47 from 48. The employment index decreased to 48.4, the lowest since September 2009, from 52.1 the prior month.

The index of prices paid dropped to 52.5 last month from 55. A measure of supplier deliveries increased to 50.3 from 49.6.

The measure of orders waiting to be filled was little changed at 41 after 41.5. The inventory index decreased to 45 from 50, while a gauge of customer stockpiles slumped to 42.5 from 49.

Other regional manufacturing reports showed weakness last month, much of it in areas hit by Sandy. Factory activity in the New York-area contracted in November for the fourth consecutive month as the storm knocked out electrical power and limited activity, disrupting about 70 percent of businesses that were surveyed by the Federal Reserve. Output in the Philadelphia-area shrank for the sixth time in seven months.